Main menu

Category Archives: Uncategorized

Post navigation

In September 2016, Wells Fargo admitted to opening millions of unauthorized accounts and signed a settlement requiring payment of $185 million in penalties. That news, remarkable as it was, has turned out to be very far from the whole story of the bank’s misdeeds. One after another, Wells Fargo has been hit by a succession of scandals, all growing out of its aggressive efforts to extract as much revenue as possible from every customer, by fair means or foul.

Here, in brief, are the major forms of systematic wrongdoing in which Wells Fargo has been implicated:

BOGUS ACCOUNTS

When the scandal broke: September 2016What we know: Wells Fargo’s frontline workers faced continual pressure to meet overly ambitious or impossible sales quotas, and some responded by signing people up without their knowledge for credit cards, online bill pay, overdraft protection, and other fee-generating services. The company now puts the total number of fake accounts at 3.5 million — fully 2 million more than its original September 2016 estimate of 1.5 million — and the cost to its customers at $6 million, which Wells has said it will refund. In addition to the dollar damages, these practices injured people’s credit scores and their ability to secure loans, rent apartments, or land jobs.

Workers who resisted or tried to report such problems were ignored, punished, or fired. After leaving the company, some found it hard to get hired by other banks because Wells Fargo had characterized them as unreliable or failed to provide favorable references.

At least as far back as 2013, customers were trying to bring lawsuits over the fake accounts. Because of fine-print clauses buried in the contracts governing their legitimate accounts, however, Wells Fargo was able to force such complaints into a secret, one-on-one arbitration process, which allowed the company’s practices to continue and go undetected for years. Even now, Wells Fargo insists that defrauded customers should be barred from having their day in court.

The insurance was more expensive than policies borrowers could have found independently; and because the charges were typically folded into loan payments made through automatic debiting, many people ended up paying twice over – for insurance they secured on their own and for the coverage imposed on them by Wells Fargo. These extra charges led to higher rates of delinquency, default, and repossession.

The bank has agreed to return some $80 million to an estimated 570,000 affected customers, including 20,000 whose vehicles were repossessed. But some victims are far from satisfied. An Indiana man, Paul Hancock, says he was charged $598 for insurance and hit with a late fee for a missed payment – even after repeatedly telling the bank he already had his own coverage. Hancock is the lead plaintiff in a class-action lawsuit seeking damages far beyond what Wells has offered. “Refunds,” his lawyer says, “don’t address the fraud or inflated premiums, the delinquency charges, and the late fees.”

AUTO INSURANCE RIPOFF – PART 2

When the scandal broke: August 2017What we know: This problem involves another form of insurance, Guaranteed Auto Protection or GAP, which protects lenders and borrowers in cases of theft or when the value of the car is no longer sufficient to cover the remaining loan balance. Wells Fargo and its dealer-partners aggressively marketed GAP insurance to borrowers, but often failed to provide mandated refunds to those who paid off their loans early.

Wells Fargo says it is still trying to assess the number of people affected. The total, according to the New York Times, is likely to be in the “tens of thousands.”

ILLEGAL REPOSSESSION OF SERVICE MEMBERS’ CARS

When the scandal broke: September 2016What we know: Wells Fargo has agreed to pay $24.1 million in refunds and penalties for seizing hundreds of cars from active-duty servicemembers without the court order required by federal law. In one case (which triggered a Justice Department investigation), Wells repossessed a National Guardsman’s used car while he was preparing to deploy to Afghanistan. The company then tried to make the guardsman pay more than $10,000 to cover the difference between his loan balance and the price his car had been resold for.

MAKING SMALL BUSINESSES PAY HIDDEN CREDIT-CARD FEES

When the scandal broke: August 2017What we know: A Wells Fargo joint venture has been accused of overcharging small businesses for processing their credit and debit card transactions. A class-action lawsuit claims that after signing three-year contracts with a $500 early-termination penalty, merchants got sandbagged with fees that were not properly disclosed. Some of those fees, they say, were falsely labeled as “interchange charges,” making it sound as if they had been imposed by credit card companies when, in fact, a chunk of the money went to the Wells Fargo partnership. Hundreds of thousands of businesses across the country may have been affected, according to the lawsuit.

The bank has denied these claims, asserting that its “negotiated pricing terms are fair and were administered appropriately.” But a former employee told CNN that he and his sales team were directed to target the most unsophisticated and vulnerable retailers. They were told “to go out and club the baby seals – mom-pop-shops that had no legal support,” as he put it.

DECEPTIVE MORTGAGE MODIFICATIONSWhen the scandal broke: June 2017What we know: Wells Fargo made unauthorized changes in the terms of mortgages held by homeowners who had filed for bankruptcy. Taking advantage of a government program meant to help troubled borrowers, Wells shifted people into modified mortgages that featured lower monthly payments, but, as explained in the fine print of paperwork that people were unlikely to read, kept them on the hook for additional years or decades, significantly increasing their interest obligations and the bank’s potential profits. Along the way, Wells pocketed incentive payments, at taxpayer expense, of up to $1,600 per loan.

Lawsuits charge the company with failing to inform bankruptcy courts of these changes as required by law. Although the company disputes the point, Wells has been sharply criticized by judges in North Carolina and Pennsylvania. One judge described the bank’s methods as “beyond the pale.”

In separate cases involving tens of thousands of additional homeowners in bankruptcy, Wells Fargo has been accused of improperly changing the amounts of mortgage payments to cover adjustments in real estate taxes or insurance costs. In November 2015, the bank entered into a settlement with the Justice Department, agreeing to deliver $81.6 million in financial relief to some 68,000 affected borrowers.

STEERING MINORITY HOMEOWNERS INTO HIGHER-COST MORTGAGESWhen the scandal broke: May 2017What we know: During the subprime-mortgage boom years, many banks and brokers were guilty of steering minority homeowners into needlessly expensive and dangerous loans. Wells Fargo now stands accused of continuing to do so even after agreeing to a $175 million settlement of similar charges at the federal level in 2012. According to a lawsuit brought by the City of Philadelphia, 23 percent of Wells’ loans to minority residents of Philadelphia between 2004 and 2016 were high-cost, high-risk, while just 7.6 percent of its loans to white homeowners fell into that category. Even the most credit-worthy African-American borrowers were 2.5 times as likely as comparable white borrowers to receive such a loan, and Latino borrowers 2.1 times as likely, the city says.

Wells Fargo describes the Philadelphia charges as “unsubstantiated,” but Oakland, Calif., has brought a similar action and the company has settled cases with the cities of Baltimore and Miami.

OVERDRAFT OVERCHARGESWhen the scandal broke: August 2010What we know: Wells Fargo is one of a number of banks that routinely made customers pay extra overdraft fees by tinkering with the order of debit charges. Instead of processing a day’s transactions as they came in, the bank would make the biggest payments first, maximizing its own revenues by maximizing the cost to its customers.

Wells announced that it was abandoning this practice in 2014. But while other banks, including Bank of America, JPMorgan Chase, and Capital One, have agreed to compensate customers for damages, Wells Fargo has so far refused to do that. Even after losing a case in California and being ordered to pay $203 million in relief, the company continues to defend its past practices and to assert the right to use forced-arbitration clauses to block consumers from taking the company to court over the issue. A federal appellate court in Atlanta is currently weighing Wells Fargo’s appeal of a lower court’s ruling against its efforts to force these claims into arbitration.

VETERANS’ MORTGAGE SCAMWhen the scandal broke: October 2011What we know: A whistleblower lawsuit filed by two Georgia mortgage brokers accused Wells Fargo of defrauding veterans and taxpayers out of hundreds of millions of dollars. The problem involved government-guaranteed home refinancing loans. Wells violated federal rules by making veterans pay lawyers’ fees and closing costs, and disguised those forbidden charges in order to evade detection by the Department of Veterans Affairs. In 2011, Wells reached a $10 million settlement of a related class-action lawsuit on behalf of more than 60,000 veterans. In August 2017, the company agreed to pay an additional $108 million to the federal government.

CHARGING MORTGAGE APPLICANTS FOR THE BANK’S DELAYS

When the scandal broke: January 2017What we know: This one involves fees for borrowers who are late submitting paperwork on locked-rate mortgages. According to at least half a dozen ex-employees, Wells Fargo branches in the Los Angeles area blamed borrowers for delays caused by the bank’s own errors or understaffing. That practice has also been the subject of a borrower class-action lawsuit and an investigation by the Consumer Financial Protection Bureau. “We are talking about millions of dollars, in just the Los Angeles area alone, which were wrongly paid by borrowers/customers instead of Wells Fargo,” a former worker charged in a letter to the Senate banking committee.

FRAUDULENT FEES ON STUDENT LOANS

When the scandal broke: August 2016What we know: Wells Fargo agreed to a $4.1 million settlement of a Consumer Bureau lawsuit accusing the company of charging illegal fees and failing to update inaccurate credit report information in connection with loan payments made between 2010 and 2013. Under the law, Wells was supposed to help students avoid unnecessary fees; but when payments fell short of the full amount due on multiple loans, the bank apportioned them in a way that maximized fees, according to the lawsuit. By not disclosing that fact, Wells left borrowers “unable to effectively manage their student loan accounts and minimize costs and fees,” the Bureau said. Wells was also charged with illegally adding late fees to the accounts of students whose initial payments arrived on the final day of a six-month grace period.

LYING TO CONGRESS

When the scandal broke: August 2017What we know: Wells Fargo executives, including former CEO John Stumpf, appear to have withheld information related to auto-insurance fraud during congressional hearings held in September 2016. According to the bank’s own timeline, its internal review unearthed the auto-insurance errors in July 2016; the bank then retained the consulting firm Oliver Wyman to assess the problem, and it decided to change its practices at around the time Stump was answering Congress’s questions about the fake-accounts scandal.

But the bank kept its auto-insurance woes secret until July 2017, when the New York Times obtained a copy of the Oliver Wyman report and published a story about it. Meanwhile, as a witness before the House and Senate banking committees, Stumpf made no mention of any problems related to auto insurance, even when he was asked directly about fraudulent activity in other areas. The bank once again failed to disclose these problems in written responses to questions from members of Congress.

Thirty-three groups, including Americans for Financial Reform and Public Citizen, have asked Congress to hold further hearings on this issue as well as newly revealed consumer abuses. To knowingly withhold relevant information from a congressional inquiry is a criminal offense, punishable by up to five years in prison.

During the presidential campaign, Donald Trump railed against Wall Street elites and vowed to close the carried interest loophole which allows private equity and hedge fund billionaires to pay lower effective tax rates than middle-income American families.

Appearing in Louisville, KY this week at a forum with Senate Majority Leader Mitch McConnell and a group of business leaders, Treasury Secretary Steven Mnuchin vaporized that promise. Yes, he said, the Administration wants to close the carried interest loophole for hedge fund managers, but not for “other types of funds that create jobs” like private equity and real estate fund managers. The problem with that: private equity – which might more accurately be described as destroying jobs than creating them – is in fact the primary beneficiary of the loophole.

The Administration’s double talk on closing the carried interest loophole is transparent hypocrisy. Americans are fed up with cynical, pretend measures; they want real action to get tough on Wall Street. Instead of squeezing ordinary families in the name of tax cuts for the wealthiest, real tax reform should include measures to make Wall Street pay its fair share.

The hypocrisy of Trump’s economic populism became apparent early on, as he filled top positions with former Goldman Sachs executives. Then came a series of attacks – in clear alignment with Wall Street’s interests – on regulations put in place after the financial crisis. And now, as Congress returns from recess, they are ready to continue with Wall Street giveaways.

Secretary Mnuchin’s comments came in the context of broader Administration tax proposals which promise to open up a whole new avenue of tax avoidance for wealthy Wall Street financiers. In April, the Trump Administration released a 1-page tax plan outlining the broad strokes of a proposal that would, among other things, lower the tax rate on “pass-through” businesses to 15%. This idea was portrayed by the White House and Republican leaders as a tax cut for small businesses, but more than three-quarters of the benefits would go to the top 1% according to the Tax Policy Center, while only 6.6% of all business owners would gain anything. Rather than help small businesses be competitive, Trump’s tax cut would be a gift to America’s wealthiest, including private equity and hedge fund managers, and real estate developers like Trump himself — who already enjoy a tax system rigged in their favor.

Leading the process on taxes is a group that has nicknamed itself the “Big Six.” They include Treasury Secretary Mnuchin, National Economic Council Director Gary Cohn, Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan, Senate Finance Chair Orrin Hatch, and Ways & Means Committee Chair Kevin Brady. Backed by a multi-million dollar tax overhaul campaign launched by the Koch Brothers, the Big Six have been out on the road promoting their deceptive vision as a way to help American workers.

House Speaker Paul Ryan, who received $5,727,069 in contributions from the financial sector between 2015 and 2016, and helped win his chamber’s approval for a radical bill to roll back financial and consumer protections, was recently called out by a Catholic nun during a live CNN town hall for not siding with the poor and working class, “as evidenced by the recent debates around health care and the anticipated tax reform.” During the televised town hall, Ryan had to correct himself after promoting “tax cuts” instead of “tax reform.”

In spite of Republicans’ best efforts to polish their words and sell their plans as good for ordinary Americans, people see through the phony rhetoric; and what they see is a massive giveaway to Wall Street, big corporations and the wealthy. Real tax reform must include steps to make the financial services industry pay its fair share – that is the message of the Take On Wall Street campaign, a group of over 50 community groups, unions, consumer advocates and others, including Americans for Financial Reform, Communications Workers of America, Public Citizen, Institute for Policy Studies, the AFL-CIO and Americans for Tax Fairness. The coalition is calling on Congress to adopt a set of tax reform measures that would raise more than $1 trillion in additional revenue and discourage dangerous Wall Street speculation. It’s not too late for Republicans to remind themselves who it is they work for, and act in Main Street’s interests.

During a recent appearance on “Meet the Press,” unofficial Trump advisor Corey Lewandowski called forthe removal of Richard Cordray as director of the Consumer Financial Protection Bureau.

His statement seemed to come out of nowhere, prompting NBC’s Chuck Todd to seek an explanation: Did Lewandowski happen to have “a client that wants” Cordray fired?

“No, no,” he insisted, “I have no clients whatsoever.”

That emphatic denial stood unchallenged for two days – until the New York Times revealed Lewandowski’s ties to Community Choice Financial, an Ohio-based company that was a major client of his former consulting firm before offering his new firm a $20,000-a-month retainer for “strategic advice and counsel.”

Community Choice is one of the country’s biggest players in the world of triple-digit-interest payday and cash loans. Majority-owned by Diamond Castle Holdings, a private equity firm with $9 billion in assets, the company has more than 500 storefronts and does business (factoring in its online as well as physical operations) in 29 states.

The company’s CEO has described the Consumer Bureau as “the great Darth Vader” of the federal government, and the source of that ill-feeling is plain to see.

The Consumer Bureau is getting ready to issue a set of consumer-lending rules that, if they resemble a proposal put forward last year, will require verification of a borrower’s ability to repay. That simple concept runs directly counter to the business model of the payday industry, which is to keep its customers in debt indefinitely, making payments that put little or no dent in the principal. Many people end up spending more in loan charges than they borrowed in the first place.

Like other payday lenders, Community Choice Financial has been a magnet for complaints and investigations. A California class-action lawsuit filed last year accuses the company, along with its subsidiary Buckeye CheckSmart, of violating a federal telephone-harassment law. That is also the theme of dozens of stories submitted to the Consumer Bureau’s complaint database. “This company,” says one borrower, “called my elderly parents issuing threats against me to ‘subpoena’ me to court…”

Another complainant describes a series of phone calls and “threats of criminal prosecution… on a loan I know nothing about, did not apply for or receive, and have never received any bills for.” Community Choice and its subsidiaries – companies with names like Easy Money, Cash & Go, and Quick Cash – figure in more than 650 Consumer Bureau complaints, over unexpected fees, uncredited payments, bank overdraft charges triggered by oddly-timed electronic debits, and collection efforts that continue even after a debt has been fully repaid, among other recurring issues.

Community Choice has also been a pioneer in in the subspecialty of evading state interest-rate caps. In Ohio and Texas, among other states that have tried to ban payday loans, Community Choice’s payday shops have camouflaged their predatory loans by using bank-issued prepaid cards with credit lines and overdraft charges; calling themselves mortgage lenders instead of consumer lenders; and registering as credit repair companies in order to charge separately for their supposed assistance in resolving people’s financial troubles.

The success of these legal workarounds tells us that it will be very hard for the states to address the scourge of payday lending without help. That’s why payday lenders are pushing Congress to strip the Consumer Bureau of its authority over them. And, that’s why Community Choice brands CheckSmart and Cash Express have been generous contributors to sympathetic members of Congress, and why – with the help of Lewandowski and other mouthpieces – the industry is trying to get the Trump administration to remove the Bureau’s director (even if there is no legal basis for doing so) and replace him with someone who can be depended on to leave payday lenders alone.

Lewandowski may be too embarrassed for the moment to continue raising his voice on the industry’s behalf. We can hope that’s true, at any rate. With or without his assistance, however, the industry’s campaign will continue, and the Lewandowski episode has made the stakes very clear: Will the Consumer Bureau be allowed to go on doing the job it was created to do, standing up to the financial industry’s power and insisting on basic standards of transparency and fair play? Or will some of the financial world’s fastest and loosest operators find a way to undermine this agency and keep it from cracking down on their abuses at great long last?

The Consumer Financial Protection Bureau is marking a double birthday. As an institution, it turns six this week. As an idea, it goes back ten years – to the summer of 2007 and an article by a little-known expert on bankruptcy and household debt named Elizabeth Warren.

Writing in the wonky pages of Democracy magazine, then-Professor, now-Senator Warren pointed out that you couldn’t buy a toaster with “a one-in-five chance of bursting into flames and burning down your house.” And yet it was entirely possible “to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street.”

One big reason for that difference, Warren wrote, was the Consumer Product Safety Commission, which had been watching over the world of toasters, power saws, baby cribs and the like since 1972. By contrast, the task of guarding consumers against defective financial products was scattered across half a dozen federal agencies; and their main concern, as she noted, was “to protect the financial stability of banks and other financial institutions, not to protect consumers.” Indeed, one of those agencies, the Office of Comptroller of the Currency, had repeatedly encouraged banks to thumb their noses at the handful of state regulators who were trying to crack down on predatory lending in the years leading up to the 2008 financial crisis.

As a remedy, Warren urged Congress to establish a watchdog agency with the full-time job of guarding consumers against deceptive and unfair practices in the financial marketplace, removing dangerous products before they could be peddled to the public.

Five years later, Warren was free to run for the U.S. Senate because the financial industry and its allies had blocked her appointment as director of the agency that Congress had gone ahead and created as part of the Dodd-Frank financial reform law. (Another birthday there: Dodd Frank was signed into law in July 2010 – seven years ago.)

Fortunately, President Barack Obama found a highly capable candidate in former Ohio Attorney General Richard Cordray. Under his leadership, the Consumer Bureau has racked up an impressive record of accomplishment. All told, CFPB enforcement actions have delivered more than $17 billion in financial relief to roughly 29 million consumers cheated in various ways by financial companies large and small.

Through its rulemaking and supervision as well as enforcement work, the Bureau has challenged a number of the financial industry’s cherished tricks and traps, like mortgages with teaser rates that adjust sharply upward after a year or two, and auto loan incentives that cause borrowers of color to be charged more than white borrowers of the same credit-worthiness. The CFPB has gone after abusive practices on the part of debt collectors, check cashers, private student lenders, and bogus “credit repair” services, as well as large-scale fraud committed by some of the country’s biggest banks, including JP Morgan Chase, Bank of America, and Wells Fargo.

In short, this is an agency that has been doing its job, standing up for ordinary consumers and resisting the power of the financial industry. But that power remains very great.

Since last fall’s elections, Wall Street lobbyists and their allies in Congress and the Trump administration have waged an all-out campaign to undermine the Bureau’s funding and authority as well as a number of its specific actions. Just this week, they launched an effort, with wide backing in both the House and Senate, to undo a CFPB rule reining in the industry’s use of fine-print forced arbitration clauses with class-action bans.

The industry’s attachment to this practice is easy to understand. Arbitration can be a just and efficient mechanism for resolving disputes between relatively equal parties who voluntarily agree to it. But the process works very differently when one party is a huge corporation and the other is a lone consumer required by a take-it-or-leave-it contract to direct all complaints of illegality to a private arbitration firm – one that has typically been chosen and paid by the company. The damages suffered by any one victim, moreover, are almost never large enough to justify the cost of pursuing a grievance, regardless of the venue. Thus the great majority of wronged consumers, once they learn that individual arbitration is the only path open to them, decide to do nothing. That’s just what happened, for example, with many of the victims of Wells Fargo’s phony accounts, enabling the bank to keep its scam under wraps for years.

In the same way, payday lenders have used these clauses to go on making triple-digit interest loans in defiance of state laws. Arkansas, for example, has a 17-percent interest rate cap inscribed in its constitution; yet it took authorities many years to make headway against lenders who continued to operate there, relying on arbitration clauses to squelch resistance.

This fight is crucial because forced arbitration, in practice, functions as a Get Out of Jail Free card for banks and lenders, allowing them to chisel lots of money out of lots of people, a little at a time. Naturally, the lobbyists and their political allies claim to be defending the “right” of consumers to choose arbitration. In reality, consumers have no say in the matter. The point of the CFPB rule is precisely to give them a choice.

Unsurprisingly, the great majority of Americans support the CFPB on this question, just as they want the Consumer Bureau itself to survive as a strong and effective agency.

It will if lawmakers heed their constituents and stop regurgitating Wall Street’s nonsensical talking points.

“This terrible bill ignores the lessons of the financial crisis and includes a huge list of giveaways to Wall Street,” said Lisa Donner, executive director of Americans for Financial Reform. “Though it may work for Wall Street and assorted predatory lenders, it is dangerous policy that is bad for financial stability, bad for consumers, bad for investors, and bad for the real economy.”

Call it what it is: Wall Street’s CHOICE Act. A detailed analysis of the bill can be found here. In broad terms it would:

Create unprecedented barriers to regulatory action that would effectively give large financial institutions veto power to overturn or avoid government oversight.

Eviscerate the Consumer Financial Protection Bureau and make it impossible for it to act forcefully against unfair or abusive practices in consumer lending markets.

Eliminate critical elements of regulatory reforms passed since the financial crisis, including restrictions on subprime mortgage lending, the Volcker Rule ban on banks engaging in hedge-fund like speculation, and restrictions on excessive Wall Street bonuses.

Increase the ability of “too big to fail” financial institutions to hold up taxpayers for a bailout by threatening economic disaster if they failed.

Weaken investor protections and accountability in the capital markets, including the elimination of crucial new fiduciary protections for retirement savers.

“The level of venom directed at the Consumer Financial Protection Bureau, an agency that is successfully carrying out its mission of preventing tricks and traps that harm American families, is astounding,” Donner said. “The changes proposed by the legislation only make sense if you want to weaken consumer protections and make it easier for Wall Street, and predatory lenders, to profit by cheating people.”

Wall Street’s CHOICE Act would:

End the Consumer Bureau’s authority to supervise large banks, returning to the failed consumer regulatory model that brought us the financial crisis.

Take away the Consumer Bureau’s core authority to take on unfair, deceptive and abusive practices, a power that has enabled the Bureau to stop Wells Fargo from opening fake accounts in their customers’ names; prohibit lenders from making false threats in debt collection; and refund consumers tricked into paying for worthless credit card add-ons.

Limit supervision of non-bank financial companies.

Undermine the Consumer Bureau’s independence, making it subject to the whims of the White House and Wall Street lobbyists.

Eliminate all CFPB jurisdiction over payday and title loans, preventing it it from taking on the unaffordable lending at the heart of the payday debt trap, and also from acting against payday lenders that break the law.

Stop the Consumer Bureau’s rulemaking on forced arbitration, which is otherwise on track to restore consumers rights to hold financial institutions accountable in court if they break the law..

Create massive loopholes in the rules put in place to discourage the kind of unaffordable mortgages that were at the heart of the foreclosure crisis.

Hide the public consumer complaint system that has been so useful in making financial companies more responsive to their customers.

The Georgia company leading the charge against new rules for prepaid cards has agreed to refund $53 million for denying customers’ access to their own money despite ads promising “instant access.”

The under-the-radar settlement between NetSpend and the Federal Trade Commission was released late last Friday night, just two days after Senator David Perdue and other Georgia lawmakers quietly moved to utilize an obscure law to block the Consumer Financial Protection Bureau’s prepaid card rule. That rule would guard consumers against fraud, improve disclosures of hidden fees, and limit – although not prohibit – prepaid cards with overdraft features that turn the cards into high-cost credit products. The rule also protects workers by requiring employers to disclose fees on payroll cards before employees sign up and making sure that workers know they do not need to accept their pay in that form.

Prepaid cards should be just that: prepaid, as are 98 percent of such cards currently on the market. NetSpend is the big exception to the rule – the only major prepaid company with opt-in overdraft fees, deceptively marketed as “protection.” NetSpend primarily sells its cards, which can repeatedly trigger $15-$25 overdraft fees, through payday lenders and employers, such as fast food chains. The company’s biggest single distributor is the payday lending chain ACE Cash Express. NetSpend cards are also unusual in permitting payday lenders to debit accounts on a user’s payday, potentially triggering an overdraft fee.

The company is fighting the CFPB rule because, it has told investors, it stands to lose roughly $80 million in fees annually if the rule goes through.

Users of prepaid cards often live paycheck to paycheck. But after wooing customers with ads promising “guaranteed approval” and “immediate access” to funds with “no waiting,” NetSpend kept some people waiting for weeks, or never approved them at all, even after they had loaded money onto their cards. The FTC order prohibits NetSpend from misrepresenting its card activation procedures in the future, in addition to requiring the company to return $53 million to those who were denied access to their money.

Largely at NetSpend’s behest, lawmakers have filed resolutions in both the House of Representatives and the Senate, invoking the rarely used Congressional Review Act to keep the CFPB’s prepaid card rule from taking effect. If the resolutions are approved, the consumer watchdog will be forever barred from enacting a substantially similar rule without Congress’s permission.

The largest prepaid card company, Green Dot, supports the CFPB’s rule, which basically assures prepaid card users of protections they already enjoy with credit and debit cards. In fact, no prepaid card company other than NetSpend has come out against the rule. It would be outrageous for Congress to block these common sense protections for millions of Americans simply in order to allow a single company to keep gouging cash-strapped families with overdraft fees to the collective tune of $80 million or more a yea

The prepaid card rule is scheduled to go into effect on October 1, 2017, although the CFPB has agreed to extend the effective date until to April 1, 2018, to allow companies more time to bring their practices into full compliance. — Lauren Saunders

Lauren Saunders is Associate Director of the National Consumer Law CenterRelated National Consumer Law Center Related Materials:

Last week, lawmakers laid the groundwork for a battle over consumer rights and forced arbitration that likely will play out through the spring.

First, congressional Democrats introduced several bills to restore consumers’ right to hold corporations accountable in court for wrongdoing. Led by U.S. Sen. Al Franken (D-Minn.), lawmakers on March 7 introduced a slate of bills aimed at ending the use of forced arbitration in various sectors. Forced arbitration provisions, also known as “ripoff clauses,” block consumers from challenging illegal corporate behavior.

Lawmakers were joined at a packed press conference by people who had been harmed by forced arbitration: a veteran illegally fired from his job while serving in the military and blocked from suing his employer; a victim of Wells Fargo fraud whose class action was kicked out of court; and former news anchor Gretchen Carlson, barred from speaking out about sexual harassment she had suffered at Fox News.

Among the bills introduced were Franken’s Arbitration Fairness Act, which would prohibit forced arbitration in consumer, employment, civil rights, and antitrust cases and Sen. Sherrod Brown’s (D-Ohio) Justice for Victims of Fraud Act, which would close the “Wells Fargo loophole” by restoring consumers’ right to sue when banks open fraudulent accounts without their knowledge.

However, in stark contrast to this push to strengthen rights and restore corporate accountability, GOP lawmakers began pressing to make it harder for consumers to band together when harmed and take corporations to court.

Two days after the Franken press conference, the House passed H.R. 985, the so-called “Fairness in Class Action Litigation Act” would effectively kill class actions by imposing insurmountable requirements to file group lawsuits. This would make it nearly impossible for consumers to hold corporations accountable for illegal and abusive behavior.

Among other onerous provisions, H.R. 985 would require that each harmed person suffer the “same type and scope of injury.” Under this absurd standard, a Wells Fargo customer with two fake accounts opened in his or her name could be barred from joining together with customers who had three fraudulent accounts. The bill also would build in costly and unnecessary delays and appeals, limit plaintiffs’ choice of counsel, and drastically restrict attorneys’ fees.

Joining together in a class action often is the only chance real people have to fight back against widespread harm, including corporate fraud and scams – particularly when claims involve small amounts of money, where it would be too costly for an individual to pursue a separate claim. Class actions have also been critical vehicles for overcoming race- and gender-based discrimination and have been instrumental in achieving victories as momentous as desegregation of our schools, as was the case in Brown v. Board of Education.

Beyond protecting the rights of the disadvantaged, class actions act as a crucial check on corporate misbehavior by returning money to harmed consumers and workers. Removing the threat of class liability would encourage systemic fraud, as banks and lenders that pad their bottom lines by committing fraud would have a competitive advantage in the marketplace.

In the financial sector, the proposed CFPB arbitration rule is a major target of financial industry lobbyists precisely because it would restore the right of consumers to join class action lawsuits. According to the CFPB’s arbitration study, class actions returned $2.2 billion in cash relief to 34 million consumers from 2008-2012, not including attorneys’ fees and litigation costs. While the CFPB rule is expected to be finalized this spring, it would be rendered largely ineffective should H.R. 985 become law.

You can watch our video against H.R. 985 here and follow developments on Twitter using the hashtag, #RipoffClause.

This afternoon, lawmakers introduced several pieces of legislation to curb the growing use of “ripoff clauses” and ensure harmed consumers, service members, students, and workers have a right to fight back in court against corporate wrongdoing. Known as forced arbitration, this practice strips Americans of any meaningful way to hold companies accountable for fraud or abuse and grants corporations a license to steal to pad its bottom line.

Forced arbitration no place in any system that is fair to everyday people. The bills introduced today would work hand-in-hand with a rule proposed by the Consumer Financial Protection Bureau (CFPB) to restrict the financial industry’s use of forced arbitration. Below are the stories of several real people harmed by forced arbitration, who would benefit from this newly-introduced legislation and the proposed CFPB rule.

Credit Cards

Tracy Kilgore, New Mexico

In July 2011, Tracy Kilgore went to a local Wells Fargo branch to change a signature card on behalf of the Daughters of the American Revolution, where she volunteered as Treasurer. Tracy did not personally bank with Wells Fargo or have any accounts with them. The bank teller asked her for her name and ID and began typing away her computer, and she promptly left once the change was processed.

Two weeks later, Tracy received a letter from Wells Fargo saying her credit card application had been rejected, though she never applied for one. When she saw the application was filed the day after she had visited the Wells Fargo branch, it became clear the bank tried to open a fraudulent credit card in her name. After Tracy found the rejected application was listed on her credit report, she called and wrote to Wells Fargo for months asking them to remove it. The bank kept saying it would take another 7-10 days, then another 2-3 weeks, to no avail. In the end, she never even got an apology.

Now, Tracy has joined with other defrauded customers in a class action lawsuit against the bank, but Wells Fargo is trying to force each consumer to fight them one-by-one in a biased and secretive arbitration system. Even though Tracy has never banked with Wells Fargo, their lawyers are trying to block her from suing them in court by pointing to an arbitration clause she never signed.

Auto Financing

Sergeant Charles Beard, California

Sergeant Charles Beard was about to be deployed to Iraq and asked for some help making his car payments. His lender, Santander Consumer USA, Inc., offered him a forbearance for a few months, but in exchange, had Sergeant Beard sign a modified lease agreement. Little did he know, a forced arbitration provision was buried in the fine print.

While serving his country in Iraq, Sergeant Beard fell behind in his payments. Men came to his home and repossessed the car – breaking federal law, which protects active duty soldiers by requiring lenders to obtain court orders before seizing their cars. Sergeant Beard brought a class action against the lender with other soldiers to enforce their protections under federal law, but their claims were thrown out due to a class action ban in the arbitration clause.

Payday Loans

Stephanie Banks, Oregon

In August 2013, Stephanie Banks made $15 an hour as a bookkeeper for the Salvation Army. To help pay rent for her and her son, she took out a $300 loan from the payday lender Rapid Cash, putting up the title to her car as collateral. Her interest rate was capped at 153.73% per year under state law. Soon after, Ms. Banks started chemotherapy to treat her lung cancer and retired from her job. A year later, she was in serious financial trouble, and had to declare bankruptcy. She listed the loan from Rapid Cash as a debt to discharge and finished the process in court with a lawyer.

Then, in August 2015, Ms. Banks almost had a heart attack when she received a letter from a collection service, claiming she owed Rapid Cash over $40,000. They threatened to destroy her credit if she did not pay immediately. Ms. Banks filed a free motion in court to dispute the $40,000 claim. Rapid Cash responded by pointing to an arbitration clause, buried in the fine print of the original agreement she signed two years earlier. The court ruled the clause still held and Ms. Banks would have to argue her case to a private arbitration firm chosen by Rapid Cash. To do this, she would have to pay $200 in arbitration fees, almost as much as her original loan.

Debt Relief

Bernardita Duran, New York

Bernardita Duran was 53 years old with only $700 in Social Security income when she paid an Arizona debt relief company to settle her credit card debts. Four thousand dollars later, Ms. Duran realized she had been scammed. She sued the company in New York federal court to get her money back, but the company pointed to a clause in their contract which stated her claims must be decided a private arbitrator – located in Arizona.

Ms. Duran protested that she could not afford to travel to Arizona, as it would cost more than a month’s worth of her income and prevent her from making rent. But the appeals court ruled that only the arbitrator in Arizona could decide if Ms. Duran could bring her claim in New York – meaning she would have to first travel across the country to Arizona to argue to the arbitrator that it’s unfair and unconscionable to force her to arbitrate her case there.

Private Student Loans

Matthew Kilgore, California

Ever since he was a child, Matthew Kilgore wanted to be a helicopter pilot. Mr. Kilgore thought he was on his way to achieving his dream when he enrolled at Silver State Helicopters, a for-profit aviation school that offered pilot training and certification. At the school’s recommendation, Mr. Kilgore took out a $55,000 private student loan from lender Keybank to cover his tuition. But Mr. Kilgore’s ambitions came to a sudden end in 2008 when his school abruptly went out of business and filed for bankruptcy, leaving students with tens of thousands of dollars in student loans but no marketable skills or diplomas. Since then, his loans nearly doubled to $103,000 with accrued interest.

Mr. Kilgore filed a lawsuit on behalf of himself and other Silver State students against Keybank to prevent them from enforcing their loan agreements or ruining the students’ credit. However, Keybank loan contracts contained an arbitration clause which prohibited class actions. An appeals court ruled the students would have to settle disputes with Keybank individually in arbitration. Meanwhile, other Silver State students who had similar loans with Student Loan Express, Inc. got $150 million in debt relief because their loan agreements did not include an arbitration clause.

​Lobbyists for big Wall Street banks and predatory lenders are pushing the Trump Administration to fire CFPB Director Richard Cordray, and they’re telling reporters it’s a done deal. They’re hoping their spin will make it so.

They don’t want the Trump team to think before they act. And that’s understandable, because firing Cordray would be a terrible idea, as well as an unlawful one. Here are five reasons why:

​#1 The CFPB has done a world of good for consumers. Since it got up and running less than six years ago, this agency has been bringing basic rules of fair play to the financial marketplace. Through its enforcement actions and complaint system, the Consumer Bureau has delivered some $12 billion in financial relief to more than 29 million Americans cheated by financial companies large and small.

#2 Students, servicemembers, veterans, and seniors would raise hell. The CFPB has been steadfastly in the corner of our nation’s service members and veterans, working with the Defense Department to close loopholes and make sure that the 36 percent APR limit on consumer loans to servicemembers and their dependents actually works, while taking enforcement actions against a succession of financial fraudsters who specialize in exploiting military families. The Bureau has also stood up for student loan borrowers with actions such as its recent lawsuit against Navient, charging the nation’s largest servicer of student loans with an array of deceptive practices. And it has been aggressive in combating the growing problem of financial exploitation of the elderly.

#3 The CFPB is hugely popular. By refusing to be cowed by the payday lenders, the big banks, and their Congressional buddies, Cordray and his agency have made quite a few powerful enemies. But they have also a vast number of devoted friends. Across party lines, voters have an overwhelmingly favorable view of the CFPB and its work. Trump voters are no different: by a margin of 55 to 28 percent, they oppose efforts to weaken or eliminate this agency.

# 4 The White House would have a vexingly hard time explaining a move to fire the CFPB’s Director. Many people voted for Donald Trump in part because of his countless promises to stand up to the power of Wall Street. Attempting to remove Director Cordray would be an obvious cave-in to the financial industry. It would not go unnoticed.

# 5He would almost certainly not get away with it. The CFPB is by law an independent agency, and not part of the Administration. Director Cordray’s term runs through July 2018, and the law says he can be removed only “for inefficiency, neglect of duty, or malfeasance in office.” Despite their feverish efforts, hostile lawmakers have been unable to come up with any charge that would pass the laugh test, and no president has ever yet succeeded in removing an appointee for cause.

Rep. Mick Mulvaney, Donald Trump’s choice to oversee the federal budget, said he hears only complaints about the Consumer Financial Protection Bureau (CFPB). That could be because he is listening to the financial services lobby, not the ordinary Americans the agency has helped.

The South Carolina Republican, whom Trump has nominated to head the Office of Management and Budget, went on a tirade during his confirmation hearing this week, calling the CFPB “the very worst kind of government entity.”

That was a surprise to South Carolinians who actually like the idea that there’s an agency in Washington fighting to make financial companies follow the law and treat people fairly.

The CFPB recently sued Navient, the nation’s largest student loan servicer, alleging that the company handled borrowers so unfairly that they ended up paying far more than was necessary. Having an ally against a big company, it turns out, is comforting to some South Carolinians.

Amanda Green of Rock Hill, South Carolina, said Mulvaney’s comment proves he’s “disconnected” from what worries people like her, a client of Navient.

“I am currently repaying my student loans to Navient, and having learned of the CFPB’s action against them, am comforted in knowing this happened.”

Standrick Jamarr Rhodes of Lancaster, South Carolina, has struggled to repay student loans as an elementary school teacher. He’d never heard of the CFPB until they sued Navient.

“To learn that I may have been cheated in that process and that there is an agency looking out for me is a relief,” he said. “Our representatives are not only wrong with comments attacking the consumer agency, but are the prime reason why I often feel government doesn’t work for people. This agency clearly does.”

The CFPB works. Rep. Mulvaney is wrong. #DefendCFPB and reject the #SwampCabinet

Categories

Meta

This blog is maintained by AFR as a forum for ongoing news and commentary about the fight for effective financial reform. Blog posts represent the opinions of their authors / posters, and do not necessarily represent the views of the AFR coalition or coalition members.